The CSR Committee and the Independent Director

CSR Committee explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

CSR started as a "comply or explain" obligation. It isn't any more. Since 2021, unspent CSR money has to go somewhere specific, on a deadline, and failing to move it carries a penalty measured against the unspent amount itself.

That change turned CSR from a reporting exercise into a cash obligation with a due date — which is exactly the kind of thing an independent director should be watching.

Applies to a company with net worth ₹500 crore+, turnover ₹1,000 crore+, or net profit ₹5 crore+ in the immediately preceding financial year. The committee needs three or more directors, at least one independent — but no committee at all is required where the spend obligation is ₹50 lakh or less, in which case the Board does the job. Spend 2% of average net profits of the last three years. Unspent money must be transferred — 30 days for ongoing projects, six months otherwise.

Applicability

Section 135(1) catches every company — private, public, listed, unlisted, and foreign companies with an Indian presence — that in the immediately preceding financial year had:

Any one of the three. The net profit threshold is the one that catches mid-sized profitable companies who assume CSR is a large-company obligation.

Once you're in, the obligation is to spend at least 2% of the average net profits of the three immediately preceding financial years, computed under Section 198.

Ceasing to qualify: a company that no longer meets any threshold isn't required to comply until it qualifies again. But the obligation for a year in which it did qualify doesn't disappear.

The committee — and when you don't need one

The default: a CSR Committee of the Board consisting of three or more directors, of which at least one must be an independent director.

Two relaxations sit on top of that, and both are commonly missed.

Where the company isn't required to appoint an independent director under Section 149(4) — a private company, or an unlisted public company below the Rule 4 thresholds — the CSR Committee needs two or more directors, and no independent director.

Where the amount to be spent does not exceed ₹50 lakh, introduced by the Companies (Amendment) Act, 2020 and in force from January 2021, no CSR Committee is required at all. The functions are discharged by the Board itself.

That second relaxation removed the committee obligation for a large number of companies whose CSR spend is real but modest. If your reference material predates 2021, it will tell you every covered company needs a committee. It doesn't.

What the committee does

Section 135(3) gives it three functions:

1. Formulate and recommend a CSR Policy to the Board, indicating the activities to be undertaken as specified in Schedule VII.
2. Recommend the amount of expenditure to be incurred on those activities.
3. Monitor the CSR Policy from time to time.

The Board then approves the policy, discloses its contents in the Board's report and on the website, and ensures the activities are actually undertaken.

The part that has teeth: unspent amounts

This is where CSR became a hard obligation.

If the unspent amount relates to an ongoing project: transfer it to a separate bank account called the "Unspent CSR Account" within 30 days from the end of the financial year. It must then be spent on that project within three financial years. Anything still unspent goes to a fund specified in Schedule VII within 30 days of the end of that third year.

If it doesn't relate to an ongoing project: transfer the unspent amount to a fund specified in Schedule VII within six months of the end of the financial year.

Excess spending can be set off. Where a company spends more than required, the excess may be set off against the obligation for up to the three succeeding financial years, subject to conditions — including a board resolution to that effect.

The penalty is proportionate to the default rather than nominal: the company is liable to a penalty of twice the amount required to be transferred, or ₹1 crore, whichever is less; every officer in default to one-tenth of that amount, or ₹2 lakh, whichever is less.

Two things follow for an independent director. The unspent transfer is a dated cash movement, so it should be on the board calendar as a compliance item, not left to be discovered at year end. And the officer-in-default exposure is personal.

Impact assessment and filings

Impact assessment. A company with an average CSR obligation of ₹10 crore or more in the three immediately preceding financial years must undertake impact assessment through an independent agency for projects with an outlay of ₹1 crore or more that have been completed not less than one year before the assessment. The report is annexed to the annual CSR report.

CSR-1. Implementing agencies — the trusts, societies and Section 8 companies through which most companies actually deliver CSR — must be registered with the MCA in Form CSR-1. Money routed to an unregistered agency is a problem for the paying company, not just the agency.

CSR-2. Covered companies file a separate CSR report to the Registrar in Form CSR-2, as an addendum to the annual financial statement filing.

What an independent director should actually check

• Is the 2% number computed on Section 198 net profits, and does it reconcile to the accounts?
• Are implementing agencies CSR-1 registered? Check the registration numbers, don't assume.
• Which projects are classified as "ongoing"? The classification decides whether you have 30 days or six months, and it's the judgement most open to convenient interpretation.
• Is the Unspent CSR Account a real, separate bank account, opened on time?
• Was any excess set-off approved by a board resolution?
• Is impact assessment being done where the ₹10 crore and ₹1 crore thresholds are crossed?
• Does the CSR spend go anywhere connected to the promoter or a related party? Related-party CSR is where reputational risk concentrates.

The last one is worth insisting on. CSR money flowing to a foundation controlled by the promoter family is legal in many configurations and indefensible in some — and it's an independent director's job to have looked.

Key takeaways

• ₹500 crore net worth / ₹1,000 crore turnover / ₹5 crore net profit, any one, in the preceding year.
• No committee needed at all where the spend obligation is ₹50 lakh or less — the Board does it.
• Two directors instead of three, with no independent director, where the company isn't required to have one.
• Spend 2% of the three-year average net profit under Section 198.
• Unspent: 30 days to the Unspent CSR Account for ongoing projects, six months to a Schedule VII fund otherwise.
• Excess can be set off against the next three years, with a board resolution.
• Penalty is twice the unspent amount (capped), with personal exposure for officers in default.

Read next

• Audit Committee: Composition, Powers and the Independent Director's Role
• Related Party Transactions: Audit Committee and Independent Director Approval
• Risk Management Committee (Regulation 21)
• Duties of an Independent Director: Schedule IV Explained

Law stated as on 5 September 2026. CSR Rules and CSR-2 filing timelines are amended frequently — confirm the current position before a transfer or a filing.